EFFECT OF INVENTORY CONTROL ON INDUSTRY PERFORMANCE A-CASE STUDY Vishal Thakur 1, Ashish kumar 2, Ashutosh 3 1 (Total Quality Engineering and management, PEC, India) 2 (Total Quality Engineering and management, PEC, India) 3 (Total Quality Engineering and management, PEC, India) Abstract The main focus of the study is inventory control and the role it plays in improving industry performance. It looks at how industries have been under pressure to focus in their inventory control, and the outcomes of such their inventory control. It also examines how many vendor are trying to introduce a perfect order system and how industry are constantly under pressure to meet the demands of these vendor. Many industries are, therefore, looking at various inventory control systems as they belief this will have a positive effect on the industry performance. Keywords: Inventory control system, Industry performance, Automobile companies 1.Introduction Top management must be concerned with all aspects of the industry operations including production of goods, delivery of services, sales, inventory control, marketing activities and supporting functions, such as personal training and data processing to handle these responsibilities most industry make extensive use of financial data and reports. Due to globalisation business become larger and more complex finance assumed the responsibility of dealing with problems and decisions associate with managing industry s assets. Inventory in wider sense, is defined as any idle resource of an enterprise. It is a physical stock of goods kept for the purpose of future affairs. The term is generally used to indicate raw materials in process, finished products, packing, spares and others stocked in order to meet expected demand or distribution in the future. Though inventory of materials is an idle resource it is not meant for immediate use and used for the future reference it is almost essential to maintain some inventories for the smooth functioning of an industry. An inventory plays the major role in the working capital of many industries. Inventories constitute the most significant part of current assets of large majority of companies in India. On an average, inventories are approximately 60 % of current assets in public limited companies in India. Because of the large size of inventories maintained by industry, a large amount of money is required to be maintained them. It is not possible for a company reduces its levels of inventories to a considerable degree, e.g., 10-20 %, without any adverse effect on production and sales, by using simple inventory planning and control techniques. The reduction in excessive inventories shows considerable impact on a company s profitability. 2. Need for the study:- Every industry needs inventory control for controlling their excessive waste. It acts like a link between production and distribution processes. The most significant part of current assets or working capital is investment in inventory in most of the industry. 400 Vishal Thakur, Ashish kumar, Ashutosh
The main purpose of inventory management is to ensure availability of materials in sufficient quantity as when required and also to minimize investment on inventories. 3. Aim:- To find the inventory turnover ratio of AREL. To know the financial performance on inventory at the industry. To calculate the Economic Order Quantity for each raw material at organization. To study of the effective utilization of inventory by using ABC Analysis. 3. Research methodology:- The study was conducted to know the position of inventory management. In every enterprise needs inventory for smooth running of its activities. It s served as a like between production and distribution process. There is a time leg between the recognition of need and its fulfilment. The greater the time lags the time lag, the higher the requirements. The secondary data was collected from annual reports, schedules, stores ledgers, budgets and purchase orders. Some for inventory control techniques are ABC Analysis EOQ Ratio analysis 3.1 ABC Analysis: - ABC Analysis is an important factor in controlling the inventory. It is very effective and useful tool for classifying monitoring and control of inventories. The industry should not keep same degree of control on all the items of inventory. It is based on Pareto law; it is also known as selective inventory control. The industry should put maximum control on those items whose is the highest, with the comparison of the other two items. The technique concentrates on important items and also known as control by importance and exception usually a industry has to maintain several types of inventories for proper control of the industry should have to classify inventories in the instance of their relative. Hence it is also known as proportional analysis. Classification of A, B &C Items:- CLASS NO.OF ITEM VALUE OF ITEM(X) A 10 70 B 20 20 C 70 10 3.2General formula for finding EOQ EOQ = 2DC o /C h Where, D = Annual demand C h = Carrying cost or holding cost per unit C o = Ordering cost per unit This formula is not valid for complex cost equation 3.3Ratio analysis:- This is the one of the powerful tools for financial analysis. It is the process of finding out various ratios. With the help of this analysis we can made clear decision. Following ratios are used in the study of ratio analysis are:- 3.1.1. Inventory Turnover Ratio a) Raw Materials Turnover Ratio b) Work-In-Progress Turnover Ratio 401 Vishal Thakur, Ashish kumar, Ashutosh
c) Finished Goods Turnover Ratio d) Inventory Conversion Period. 3.1.1INVENTORY TURNOVER RATIO: Cost of items sold Inventory Turnover Ratio = ------------------------------ Average inventory a) RAW MATERIALS TURNOVER RATIO: Raw Materials Consumed Raw Materials Turnover Ratio = -------------------------------------- Average stock of work in progress b) WORK IN PROGRESS TURNOVER RATIO: Cost of item manufacture Work In Progress Turnover Ratio = --------------------------------------------- Average stock of work in progress c) FINISHED GOODS TURNOVER RATIO: Cost of item sold Finished Goods Turnover Ratio = --------------------------------------- Average finished items d) INVENTORY CONVERSION PERIOD: Days in a year Inventory Conversion Period = -------------------------------------- Inventory Turnover Ratio 3.1.2 Data ratio analysis: Raw material turnover ratio YEAR RAW MATERIAL AVERAGE RAW RATIO VALUE CONSUMED IN MATERIAL IN(RS) (RS) 2010-2011 521839010 87131619 5.98 2011-2012 551006970 137229959 4.01 2012-2013 517917064 146155946 3.54 2013-2014 534971830 93287062 5.73 402 Vishal Thakur, Ashish kumar, Ashutosh
OBSERVATION: In the above graph indicates that raw materials turnover ratio is 5.98 times in the year 2010-11 and it is decreased to 4.01 in the year 2011-12 and also it is decreased in the next year i.e. 2012-13 to 3.54.Then it is increase to 5.73 in the year 2013-14.It can be conclude that raw materials turnover ratio has improved even with increase requirement of raw materials and business volatilities. Inventory turnover ratio Year Cost Of Goods Sold Ratio In(Rs) Average Inventories In(Rs) 2010-2011 724347587 100975334 7.17 2011-2012 759091721 197870135 3.83 2012-2013 1493411561 299080041 4.99 2013-2014 1741948166 314413543 5.54 Observation: In the above diagram shows the inventory turnover ratio is 7.17 times in the year 2010-11 and it is decreased 3.83 in the year 2011-12.Then it is increased to 4.99 in the year 2012-13, again it is increased to 5.54 in the year 2013-14.It can be conclude that inventory turnover ratio has decreased first and then increased last two years ABC Classification (2010-2011): Item No of item % of item Consumed %of consumed A 203 5.73 367547030.9 71.46 B 611 17.22 94742370.21 18.42 C 2726 77.05 52034211.1 16.12 Total 3540 100 514323612 100 Observation: The above graph shows the ABC analysis for the year 2010.A, B, C items are shown into two ways based on its percentage of total items and total consumed. The A items are less but it s consumption is more (5.73-71.46) C items are more but it s consumption is low (77.05-16.12), B class items are moderate on its percentages(17.22-18.42).the consumption is above the norms 70% A items to concentrate more. ABC Classification (2011-2012): Item No of item % of item Consumed %of consumed A 183 5.22 388320510.1 70.59 B 589 16.81 109141222.8 19.84 C 2731 77.97 5264523703 9.57 Total 3503 100 550106970 100 Observation: The above graph shows the ABC analysis for the year 2011.A, B, C items are shown into two ways based on its percentage of total items and total consumed. The A items are less 403 Vishal Thakur, Ashish kumar, Ashutosh
but it s consumption is more (5.22-70.59)C items are more but it s consumption is low (77.97-9.57), B class items are moderate on its percentages(16.81-19.84). ABC Classification (2012-2013): Observation: The above graph shows the ABC analyses for the year 2012 A, B, C items are shown Item No of item % of item Consumed %of consumed A 216 5.87 390345019.4 73.85 B 627 17.08 94792212.8 17.93 C 2831 77.05 43419834.34 8.21 Total 3674 100 528557067 100 into two ways based on its percentage of total items and total consumed. The A items are less but it s consumption is more (5.87-73.85)C items are more but it s consumption is low (77.05-8.21), B class items are moderate on its percentages(17.08-17.93). ABC Classification (2013-2014): Item No of item % of item Consumed %of consumed A 244 6.56 417584130.9 75.65 B 640 17.23 93044867.95 16.85 C 2830 76.21 41344194.10 7.50 Total 3714 100 551973193 100 Observation: The above graph shows the ABC analysis for the year 2013.A, B, C items are shown into two ways based on its percentage of total items and total consumed. The A items are less but it s consumption is more (6.56-75.65)C items are more but it s consumption is low (76.21-7.50), B class items are moderate on its percentages(17.23-16.85). 4. Conclusion: Inventory management is an important activity in Manufacturing Concern. And since the production of batteries Involves different raw materials like lead, Alloy, separators, etc., and all these raw materials have to be procured from different places, inventory management plays important role in the industry. As far as AREL is concerned, a proper maintenance of EOQ, availability of stocks, procurement of raw materials. When the company has to concentrate more in the inventory management, so that the production may increase and the level of shortage decreases and the products as made reality available to the customers. The company can also consider the suggestions and recommendations, which are actually based on the analysis made, for the battlement of the company. By following the Inventory Management Technique like JUST IN TIME (JIT), the company can reduce it cost and supplies to finish the goods at reasonable prices to the customer. The company by strictly following management techniques like EOQ, ABC Analysis can increase its profit. 404 Vishal Thakur, Ashish kumar, Ashutosh
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